Ackman's Pain Point on Herbalife

One of the most fascinating trades of 2013 so far has been the war over Herbalife (HLF).

It's pitted Bill Ackman of Pershing Square and hedge fund manager Whitney Tilson, who both have short positions in the multi-level marketing company, against Third Point's Dan Loeb, who owns 8.2% of the company in a passive long stake, and Robert Chapman of Chapman Capital. Others who are long or rumored to be long are Carl Icahn, George Soros and John Hempton.

Bob Chapman was one of the first to declare publicly that he was long on Jan. 1 in a blog post. On that day he said that 35% of his fund's assets were long Herbalife. He had many sharp criticisms of Ackman at the time. Chapman first started buying Herbalife on Dec. 24 at around $25. It's likely Loeb also bought in that week between Christmas and new year.

Herbalife is now up 30% year-to-date and about 10% today to $44.08. Herbalife is much higher than its post-Ackman attack low of $24. It's also higher than it was the day Ackman shared his 364-slide presentation in December. Therefore, many assume that -- on a day like today -- Ackman is being squeezed out of his $1 billion position.

But the real squeeze hasn't likely started yet.

If you go back and read the transcript of the interview between Ackman and CNBC's Andrew Ross Sorkin on CNBC, after Ackman's December presentation, he states that he first started shorting Herbalife seven months ago, which means mid-May, and slowly built it up over time.

A review of Herbalife's stock price over that time shows it in a range of $44 to $53. Most likely, the average price Ackman sold his short was something like the high $40s. In the best case scenario for Ackman, the average price of his short was $52.

Regardless, this means that Ackman's squeeze hasn't really started.

It's possible that many investors sense that and are zeroing in on pushing Herbalife above that number so that Ackman really has to consider covering some of his short, sparking a rally in the stock. If that happens, it could be a bloody move upwards. Remember that the company hasn't started buying back any stock yet. It is not due to report fourth-quarter earnings until Feb. 18, meaning it could start buying back stock after that.

According to some reports, Ackman's main fund returned 12% last year but half of that came from Herbalife gains in December. If that's so, even though Ackman is still up on his short position in Herbalife since inception, he's feeling pain from the 30% move in the stock in the last two weeks.